One of life’s incredible feelings is becoming a homeowner for the first time. The planning leading up to homeownership creates the greatest imaginations of how life will be and how you will decorate your new home…. new furniture, BBQ grill, or new puppy! Pool or no pool, condo or single-family residence, downtown, uptown or in the suburbs and all very exciting decisions. After a while the new feel will begin to settle becoming natural, the emotions will also mellow out, but nothing is quite like coming home to something you own. Eventually, homeowners may begin to ponder what’s next in the homeownership path, or how can they continue to build wealth and improve their homestead. What’s nice about this scenario are home improvements may come in multiple forms and be small or large. Smaller projects can be completed as a DIY project or find a local professional which typically would not need any financing or maybe your project is on a larger scale or expansion if the family is growing. Some homeowners focus on landscaping, backyard living space, interior design/remodeling, adding a pool, updating the kitchen or new addition is the scenario is right.
Luckily, over a period, especially 2020-2021 our home values increase based on the market conditions in your city or neighborhood which creates equity that can be used to your advantage. In the market here in 2021, especially here in Texas, home values are increasing significantly, and this is a good for homeowners to see their investments grow. Leveraging home equity options range but typically borrowers refinance into a lower interest rate- remove PMI and lower monthly mortgage payments, refinance into a shorter term, or you can Cash Out Refinance to use your home equity for home renovation projects, pay off debts, or use funds to invest in another property. Due to the impacts of COVID creating a remote work environment, many exercise from home, families spend a lot more time at home so upsizing to accommodate the need for larger living space or outdoor living space/pool can be justified. This is a great way to use your home equity because these renovations should improve your home’s value, so therefore, you can use that for a larger down payment on the next home when it’s time to sell. Another option is to use equity to invest in a rental property or second home. The scenarios are unlimited because every borrower has different needs.
Throughout the home ownership cycle homeowners may need to use the services of their mortgage advisor or loan officer once you have equity in the property. Neglecting to maintain and update your property can cost a lot of time and money especially if you discover a few unknown issues when it comes time to sell. Overtime wood rots, paint chips, windows leak, carpet stains, termites appear, trees grow out of control, and the list could go on… Keeping your home up-to-date in terms of function, design, and appeal is a big factor in home value because buyers would prefer a move in ready home. In a perfect world a homeowner would be able to address both required maintenance and any needed updates on a routine basis but let’s be honest sometimes we don’t have the time or feel the urgency or have the skills to get these jobs completed ourselves. These projects can be expensive especially when considering a kitchen remodel, bathroom remodel, or pool so you may be thinking how can you afford to remodel the kitchen for $35k or a basic pool for $60k?
If you are contemplating a home renovation project you may want to evaluate the return on investment, for instance, your home is valued at $300K and you want to update the kitchen. A contractor quoted you $100k because you’re tearing down some walls, replacing appliances, cabinets, countertops, and all the bells and whistles. If homes in your neighborhood are selling for $350K with similar updates, it might not be worth the $100K investment. The finishes should meet the standard of the home and what I mean is don’t use the most expensive materials for a starter home and this concept also works in the reverse for high-end homes. Do not cheap out on a home renovation project and buy-in to a lower quote that uses the cheapest quality materials because it will stand out to experienced realtors and buyers. Additionally, I’ve also seen home projects that were expensive and years down the road the homeowner needed to pay to have the structure removed, like water fountain, or concrete sculpture, or brick structures. Having these fixtures is up to you, just understand they may not be appealing to those in the purchase market or increase home values.
As a homeowner, where do your priorities fall when it comes to your mortgage? Have you thought about your strategy to lower payments by reducing interest rate and/or removing PMI, or payoff mortgage in less time, build equity by renovating home, or do you want to build wealth by investing in another property? A major part of a Mortgage Advisors Day is laying out these options for homeowners to consider as they plan their futures, so always make sure you have a trusted mortgage advisor to rely on and consult with regularly.